The Railways and Public Finance

Press, Volume LXXIV, Issue 22504, 12 September 1938, Page 8

The Railways and Public Finance

The Hon. D. G. Sullivan’s remarks about railway finance in the House of Representatives on Friday were discursive and inconclusive but highly significant. Hitherto, all the Minister’s statements on this subject have been based on the assumption that the railways can be judged only as a social service. Increased traffic and increased gross revenue have therefore been hailed as proof that the Government’s railway policy is sound; and to those critics who have called attention to the steady decline in earning power the Minister has invariably been content to reply that the railways cannot fairly be judged by ordinary commercial standards. On Friday, for the first time, he admitted to some doubt on the question “whether it might be “ necessary to ensure that the railways made “ a larger contribution to the Consolidated “ Fund.” This, of course, is a misleading way of putting the question, since it invites the inference that the railways are being milked financially for the benefit of the national finances. -The payment into the Consolidated Fund is the difference between gross revenue and gross expenditure, interest charges being omitted from the second item. Last year, according to the official railway accounts, this so-called net revenue was £1,703,000 less than interest charges; and a more strictly commercial system of accounting would increase this deficit by at least £500,000.' Moreover, it may be suspected that the Minister’s sudden interest in the commercial aspect of the railways is due to the possibility that before long the railways will be making no contribution at all to their interest bill and will be failing to cover operating costs. 3_,ast year, rail-way operating expenses were 96.05 per cent, of operating earnings, compared with 91.81 per cent, in the previous year and 88.46 per cent, in the year before that. In the currerit year the prospects are for a further increase in overhead charges and some decline in revenue, a combination of trends which would wipe out the present margin of profit on operation. This takes no account of the probability that next year the Railways Department will take over new sections of line which will increase its interest bill and are not likely to increase its net earning cower. Faced with the prospect that within a short time the railways may have a disturbing influence on the national finances, Mr Sullivan feels impelled to consider the case for increased freights and fares. Such an increase can be justified not only as a measure of financial prudence / but also on grounds of general transport policy. It is not desirable that the railways should continue to win customers away from other forms of transport by charging uneconomic rates. Nevertheless, the Minister will find that increased freights will be paid with a very bad grace

by the farmers, who will be more affected than any other section of the community. If the Minister is wise he will look at both sides of the railway accounts and remember that operating profits are governed by expenditure as well as by revenue.